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90–771 PDF 2014

EXAMINING THE FEDERAL GOVERNMENT’S FAILURE TO CURB WASTEFUL STATE MEDICAID FINANCING SCHEMES 

HEARING 

BEFORE THE

SUBCOMMITTEE ON ENERGY POLICY, 

HEALTH CARE AND ENTITLEMENTS 

OF THE

COMMITTEE ON OVERSIGHT 

AND GOVERNMENT REFORM 

HOUSE OF REPRESENTATIVES 

ONE HUNDRED THIRTEENTH CONGRESS 

SECOND SESSION 

JULY 29, 2014 

Serial No. 113–140 

Printed for the use of the Committee on Oversight and Government Reform 

( 

Available via the World Wide Web: http://www.fdsys.gov 

http://www.house.gov/reform 

(II) 

COMMITTEE ON OVERSIGHT AND GOVERNMENT REFORM 

DARRELL E. ISSA, California, Chairman 

JOHN L. MICA, Florida 

MICHAEL R. TURNER, Ohio 

JOHN J. DUNCAN, JR., Tennessee 

PATRICK T. MCHENRY, North Carolina 

JIM JORDAN, Ohio 

JASON CHAFFETZ, Utah 

TIM WALBERG, Michigan 

JAMES LANKFORD, Oklahoma 

JUSTIN AMASH, Michigan 

PAUL A. GOSAR, Arizona 

PATRICK MEEHAN, Pennsylvania 

SCOTT DESJARLAIS, Tennessee 

TREY GOWDY, South Carolina 

BLAKE FARENTHOLD, Texas 

DOC HASTINGS, Washington 

CYNTHIA M. LUMMIS, Wyoming 

ROB WOODALL, Georgia 

THOMAS MASSIE, Kentucky 

DOUG COLLINS, Georgia 

MARK MEADOWS, North Carolina 

KERRY L. BENTIVOLIO, Michigan 

RON DESANTIS, Florida 

ELIJAH E. CUMMINGS, Maryland, Ranking 

Minority Member 

CAROLYN B. MALONEY, New York 

ELEANOR HOLMES NORTON, District of 

Columbia 

JOHN F. TIERNEY, Massachusetts 

WM. LACY CLAY, Missouri 

STEPHEN F. LYNCH, Massachusetts 

JIM COOPER, Tennessee 

GERALD E. CONNOLLY, Virginia 

JACKIE SPEIER, California 

MATTHEW A. CARTWRIGHT, Pennsylvania 

TAMMY DUCKWORTH, Illinois 

ROBIN L. KELLY, Illinois 

DANNY K. DAVIS, Illinois 

PETER WELCH, Vermont 

TONY CARDENAS, California 

STEVEN A. HORSFORD, Nevada 

MICHELLE LUJAN GRISHAM, New Mexico 

Vacancy 

LAWRENCE J. BRADY, Staff Director 

JOHN D. CUADERES, Deputy Staff Director 

STEPHEN CASTOR, General Counsel 

LINDA A. GOOD, Chief Clerk 

DAVID RAPALLO, Minority Staff Director 

SUBCOMMITTEE ON ENERGY POLICY, HEALTH CARE AND ENTITLEMENTS

JAMES LANKFORD, Oklahoma, Chairman 

PATRICK T. MCHENRY, North Carolina 

PAUL GOSAR, Arizona 

JIM JORDAN, Ohio 

JASON CHAFFETZ, Utah 

TIM WALBERG, Michigan 

PATRICK MEEHAN, Pennsylvania 

SCOTT DESJARLAIS, Tennessee 

BLAKE FARENTHOLD, Texas 

DOC HASTINGS, Washington 

ROB WOODALL, Georgia 

THOMAS MASSIE, Kentucky 

JACKIE SPEIER, California, Ranking 

Minority Member 

ELEANOR HOLMES NORTON, District of 

Columbia 

JIM COOPER, Tennessee 

MATTHEW CARTWRIGHT, Pennsylvania 

TAMMY DUCKWORTH, Illinois 

DANNY K. DAVIS, Illinois 

TONY CARDENAS, California 

STEVEN A. HORSFORD, Nevada 

MICHELLE LUJAN GRISHAM, New Mexico 

(III) 

C O N T E N T S 

Page 

Hearing held on July 29, 2014 ............................................................................... 1 

WITNESSES 

Ms. Katherine Iritani, Acting Director, Health Care Team, Government Accountability Office 

Oral Statement ................................................................................................. 6 

Written Statement ............................................................................................ 8 

Mr. John Hagg, Director, Medicaid Audits, Office of Inspector General, Department of Health and Human Services 

Oral Statement ................................................................................................. 29 

Written Statement ............................................................................................ 31 

Ms. Cindy Mann, Deputy Administrator and Director, Center for Medicare 

and the Children’s Health Insurance Program Services, Center for Medicare 

and Medicaid Services 

Oral Statement ................................................................................................. 38 

Written Statement ............................................................................................ 41 

APPENDIX 

July 21, 2014 letter from GAO to Reps. Issa, Lankford and Jordan, submitted 

by Chairman Lankford ........................................................................................ 80 

July 2014 GAO Report on Medicaid Financing, submitted by Chairman 

Lankford ................................................................................................................ 87 

Letters sent to Governors from Rep. Cummings, submitted by Rep. 

Cummings ............................................................................................................. 154 

(1) 

EXAMINING THE FEDERAL GOVERNMENT’S 

FAILURE TO CURB WASTEFUL STATE MEDICAID FINANCING SCHEMES 

Tuesday, July 29, 2014, 

HOUSE OF REPRESENTATIVES, 

SUBCOMMITTEE ON ENERGY POLICY, HEALTH CARE AND

ENTITLEMENTS, 

COMMITTEE ON OVERSIGHT AND GOVERNMENT REFORM, 

Washington, D.C. 

The subcommittee met, pursuant to notice, at 10:00 a.m. in room 

2154, Rayburn House Office Building, the Honorable James 

Lankford [chairman of the subcommittee], presiding. 

Present: Representatives Lankford, Walberg, Woodall, 

Cummings, Speier, Norton, Duckworth, Lujan Grisham, Davis and 

Maloney. 

Staff Present: Brian Blase, Majority Senior Professional Staff 

Member; Will L. Boyington, Majority Deputy Press Secretary; 

Meinan Goto, Majority Professional Staff Member; Jessica Seale, 

Majority Digital Director; Matthew Tallmer, Majority Investigator; 

Sarah Vance, Majority Assistant Clerk; Una Lee, Minority Counsel; 

Suzanne Owen, Minority Senior Policy Advisor; and Michael Wilkins, Minority Staff Assistant. 

Mr. LANKFORD. The committee will come to order. 

Without objection, the Chair is authorized to declare a recess of 

the Committee at any time. 

Good morning. 

I want to begin this hearing by stating the Oversight Committee 

Mission Statement. We exist to secure two fundamental principles. 

First, Americans have the right to know that the money Washington takes from them is well spent. Second, Americans deserve 

an efficient and effective government that works for them. 

Our duty on the Oversight and Government Reform Committee 

is to protect these rights. Our solemn responsibility is to hold government accountable to taxpayers because taxpayers have a right 

to know what they are get from the government. 

We will work tirelessly in partnership with citizen watchdogs to 

deliver the facts to the American people and bring genuine reform 

to the Federal bureaucracy. 

This is the mission of the Oversight and Government Reform 

Committee. 

Today’s hearing of the Subcommittee on Energy Policy, Health 

Care and Entitlements is dealing with Medicaid. In the last Congress, this committee held five hearings on waste, fraud, abuse and 

2 

mismanagement in the Medicaid Program. At those hearings, we 

highlighted tens of billions of dollars that are unaccounted for or 

improperly paid annually. 

The goal of today’s hearing is to get an update on progress, discuss additional oversight needs and hear what will be done to prevent improper payments in the future. 

In the past, we learned that Texas’ Medicaid program was spending more on kids’ braces than the rest of the state’s Medicaid programs combined and that both state and Federal Government were 

blind to the problem until a Texas news story came out. 

We learned that CMS approved Medicaid managed care rates in 

Minnesota well in excess of what was actuarially appropriate. 

We learned that payment rates for New York State operated developmental centers rose to more than $5,000 per patient per day, 

ten times higher than the rates received by private facilities in 

New York that perform similar functions. In 2012, taxpayers paid 

nearly $2.5 billion for about 1,300 patients residing in these facilities. 

In March of last year, the Committee released a bipartisan report estimating that the state received $15 billion above the legally 

permissible amount over a two decade period through these high 

payment rates. 

On a bipartisan basis, the Committee urged CMS to end the 

overpayments moving forward and to recover an appropriate 

amount of past overpayments. This past Friday, CMS announced 

its intention to recover nearly $1.3 billion in excess developmental 

center payments for 2010 from New York alone. 

We applaud CMS’ actions and we encourage CMS to continue to 

recover the full amount due to the federal taxpayer from both 2011 

and 2012. 

Over the past two years, at this committee’s request, the Government Accountability Office and Health and Human Services’ Inspector General’s Office have both conducted work to shed greater 

light on Medicaid spending. Today, they will present their findings 

and recommendations. 

All states take advantage of the extremely complicated Medicaid 

financing rules to one degree or another to maximize federal Medicaid money flowing into their state. At the root of the problem is 

an uncapped federal reimbursement of State Medicaid spending. 

Unfortunately, this problem is likely to get much worse with 

Obamacare’s Medicaid expansion. 

Today’s hearing will show that Medicaid Program financing 

needs and fundamental reform, not a blanket expansion of the program itself. 

GAO will provide evidence that state financing schemes over the 

past five years shift costs to the federal taxpayer. GAO will provide 

testimony that CMS cannot monitor whether state financing techniques and Medicaid payments to providers comply with legal requirements because the data CMS collects is insufficient. 

GAO will also provide testimony that government providers tend 

to receive substantially higher Medicaid payments than private 

providers. For instance, GAO found two local government hospitals 

in New York City that received $400 million in Medicaid suppleVerDate Aug 31 2005 10:06 Oct 14, 2014 Jkt 000000 PO 00000 Frm 00006 Fmt 6633 Sfmt 6633 C:\DOCS\90771.TXT APRIL
3 

mental payments in 2011 and had an average daily payment rate 

nearly ten times the amount of private hospitals in the state. 

The Inspector General will provide testimony about its findings 

from several audits of New York’s Medicaid program, including a 

finding that state operated residential centers receive hundreds of 

millions of dollars above costs each year. 

The large payments received by these two local government hospitals and the state operated residential centers undoubtedly violate Title 19 of the Social Security Act which mandates that Medicaid payment rates must be efficient and economical. 

The high rates also violate Medicaid upper payment limit requirements which prohibit states from claiming federal matching 

funds for Medicaid payments that are in excess of what Medicare 

would have paid for similar services. 

These examples raise serious questions about the ability of CMS 

to effectively oversee State Medicaid spending. How does CMS continue to fail to detect State Medicaid spending that is clearly not 

efficient and economical and that violates Medicaid upper payment 

limits? 

What does CMS plan to do about the GAO and IG findings that 

will be presented here today? 

Finally, what steps will CMS take to monitor state financing and 

payment schemes during Obamacare’s Medicaid expansion? 

All this is a part of our conversations. As I shared with the witnesses earlier today, this will be our conversation during this time 

period. We want to be able to get to the facts and the process. 

Billions of taxpayer dollars are at stake in this process and all 

of us have a commitment to be able to take care of those in greatest need but we all have a commitment to be able to honor the federal taxpayer in the process. 

I thank the witnesses for being here today and look forward to 

all of your testimony. 

With that, I will recognize the distinguished Ranking Member, 

the gentlelady from California, Ms. Speier, for her opening statement. 

Ms. SPEIER. Thank you, Mr. Chairman. Thank you to all the witnesses who have joined us today. 

Tomorrow is the 49th anniversary of the Medicaid Program. In 

1965, this country made a pledge to low income working and disabled Americans that they would have a safety net to provide for 

their basic health care needs. 

This partnership between the state and federal governments has 

delivered on its promise for nearly 50 years, providing critical medical services to the most vulnerable Americans. 

Under the Affordable Care Act, we have extended this commitment to millions more Americans. This year, states were able to expand Medicaid to all adults under 65 with incomes up to 138 percent of the federal poverty level. We are talking about a person 

with an income of approximately $16,000 annually or a family of 

four with an income of $32,900. 

For these newly eligible enrollees, the Federal Government will 

pick up 100 percent of the cost of the expansion from 2014 to 2016 

falling gradually to 90 percent by 2020. Twenty-seven states have 

decided to expand Medicaid. That is a majority of the states in this 

4 

country, including a number of Republican controlled legislatures 

and governors. 

For example, recently Governor Kasich announced his decision to 

expand Medicaid in the state of Ohio stating, ‘‘It is going to save 

lives. It is going to help people. You tell me what is more important 

than that.’’ 

To the detriment of their state bottom lines, some governors and 

state legislatures are so blinded by hostility towards the ACA that 

they overlook the compelling moral and economic reasons to expand Medicaid. 

Similarly, many congressional Republicans view the ACA Medicaid expansion as well as the Medicaid Program generally as an 

anathema. Today, we will hear a number of arguments about why 

Medicaid should be cut or turned into a block grant. Let us remember we are talking about people making $16,000 a year. 

First, Republicans argue that Medicaid’s costs are growing out of 

control but average annual Medicaid cost growth per beneficiary 

over the last 30 years has been no greater than the growth of 

health care cost systemwide. 

In fact, Medicaid’s cost growth per beneficiary has been growing 

slower than cost in the private insurance market. 

Second, Republicans argue that the financing structure of Medicaid is highly vulnerable to gaming by states that use financing 

mechanisms to maximize federal funding. Some examples they 

point to include the use of intergovernmental transfers, IGTs, certified public expenditures, CPEs, and provider taxes. 

Therefore, my colleagues argue, the only way to control federal 

Medicaid costs is to block grant funding. 

It is important to point out that under the current statutes and 

regulations, provider taxes, intergovernmental transfers and certified public expenditures are entirely legal and permissible ways 

to finance the non-federal share of Medicaid. 

Nearly all 50 states use these financing mechanisms and have 

done so for decades. Moreover, the Federal Government has taken 

a number of steps over the past two decades to limit these mechanisms. 

Legislation enacted in 1992, 1997, 2000 and 2006, as well as federal regulations and guidances have imposed restrictions on states’ 

abilities to draw down additional federal Medicaid funds. 

I am not saying that Medicaid is perfect. One problem I repeatedly hear about is that Medicaid pays providers much less than 

what Medicare pays. Even after factoring the Medicaid Supplemental Payment Program, California hospitals provided nearly $14 

billion in uncompensated care in 2011. 

This figure includes $5.2 billion in losses due to the difference in 

cost of caring for Medi-Cal patients and what the program pays 

hospitals for those services. 

Although the problem of uncompensated care is particularly 

acute in California, uncompensated care costs and Medicare reimbursement rates are an issue for providers nationwide. 

Any effort to restrict state financing of the non-federal share of 

Medicaid or change the upper payment limits must be considered 

in this context and in the context of how such changes will affect 

providers who are already struggling to keep the doors open. 

5 

I appreciate that today we are looking at the cost implications to 

the Federal Government by examining legitimate and legal practices that states use to fund their non-federal share of Medicaid. 

But if we are serious about preventing and identifying waste, fraud 

and abuse, there is so much more that we could be doing. 

We are currently being penny wise and pound foolish if we do not 

fully fund the HHS Inspector General’s fiscal year 2015 budget request which is one of the best tools we have for identifying waste, 

fraud and abuse. 

I look forward to hearing from GAO and OIG regarding their 

concerns and recommendations and from CMS regarding what the 

agency is doing to improve federal oversight of state financing of 

Medicaid costs. 

I also look forward to hearing about any additional actions that 

Congress should take to address these issues. 

With that, I yield back. 

Mr. LANKFORD. Members will have seven days to submit opening 

statements for the record. 

I would like to enter two additional items into the record. This 

is the July letter from the Office of Inspector General relating to 

the questions we asked. This is the July Medicaid Financing Report from the GAO. Without objection, so ordered. 

We will now recognize our first and only panel in this conversation. 

Ms. Katherine Iritani is the Acting Director of the Health Care 

Team for the Government Accountability Office. Thank you for 

being here. 

Mr. John Hagg is the Director of Medicaid Audits in the Office 

of Inspector General, Department of Health and Human Services. 

Thank you as well. 

Ms. Cindy Mann is Deputy Administrator and Director at 

theCenter for Medicare and the Children’s Health Insurance Program Services for the Center for Medicare and Medicaid Services. 

Thank you all for being here. 

Pursuant to Committee rules, all witnesses are sworn in before 

testifying. Please stand and raise your right hand. 

Do you solemnly swear or affirm that the testimony you are 

about to give will be the truth, the whole truth, and nothing but 

the truth so help you God? 

[Witnesses respond in the affirmative.] 

Mr. LANKFORD. Thank you. You may be seated. 

In order to allow time for discussion, I would ask you to limit 

your testimony to five minutes. You have all given extensive written testimony as well. That will be made a part of the permanent 

record. 

You may deviate from what you said in your written testimony 

although we would like for it to at least be consistent factually. 

This conversation is yours to be able to share additional oral testimony with us. 

The Chair will recognize Ms. Iritani first for her five minutes. 

6 

WITNESS STATEMENTS 

STATEMENT OF KATHERINE IRITANI 

Ms. IRITANI. Thank you, Mr. Chairman. 

Chairman Lankford, Ranking Member Speier and members of 

the subcommittee, thank you for the opportunity to be here as you 

examine how states can shift Medicaid costs to the Federal Government. 

The over $400 billion Medicaid Program has been on GAO’s list 

of high risk programs since 2003. A contributing reason was concerns we had about federal oversight of complex state medicaid financing and payment arrangements. 

Medicaid provides care to our Nation’s most vulnerable citizens. 

As such, ensuring the program’s long term sustainability is very 

important. My remarks today will focus on our new report on state 

medicaid financing and ongoing work on state medicaid payments 

to government providers. 

The bottom line of our recent work is a message about the need 

for transparency. There are significant gaps in data to understand 

both the broader picture of the extent to which states rely on different sources to finance their share of Medicaid payments and the 

more detailed picture of what Medicaid providers are actually getting paid. 

These gaps in data exist on the financing side and on the payment side. 

On the financing side, CMS lacks data on state reliance on funds 

they are obtaining from providers and local governments to finance 

the non-federal share. Within certain limits, states are allowed to 

tax providers and seek contributions from local governments to obtain funds for Medicaid. 

For providers, the payment they receive is the net payment, that 

is, what Medicaid pays them less their contributions toward Medicaid. states can ultimately shift more of the burden of Medicaid 

cost to the Federal Government by financing new payments with 

funds from Medicaid providers and local governments. 

States are required to report provider taxes to CMS but data are 

incomplete and unreliable. states are not required to report 

amounts of contributions from local governments. 

The need for better data on financing is underscored by results 

of our national survey of state medicaid programs. states reported 

they are increasingly relying on providers and local governments to 

help finance Medicaid. 

In 2012, about $46 billion or 26 percent of the non-federal share 

of Medicaid was financed with funds from providers and local governments, a 21 percent increase from 2008. Provider taxes almost 

doubled in size during that time from $9.7 to $18.7 billion. These 

changes are allowable within certain limits but have important implications for federal costs. 

In one example, the state financed an estimated $220 million increase in payments to nursing facilities with only a provider tax on 

those facilities plus federal matching funds. 

Now to discuss the payment side. CMS also needs better visibility into state medicaid payments. States can have incentives to 

7 

shift costs to the Federal Government by overpaying certain providers such as state or local government hospitals. 

In doing so, they can leverage federal matching funds for the excessive payments and reduce the need for state funding. 

Our ongoing work examining Medicaid payments to government 

providers has been challenged by the lack of good data. At the federal level, certain types of large payments that states often make 

are not captured in claims data, nor is data on the ownership status of providers. 

Payment data maintained only by states are not always reliable 

or very accessible. The need for better data on payment is underscored by the preliminary results from one analysis we have been 

able to complete of one state’s payment to government and private 

hospitals. 

This analysis suggests that local governments and hospitals in 

the state received average per day Medicaid payments that were 44 

percent higher than those made to private providers. One outlier 

hospital’s payments were significantly higher than others. We estimate this hospital was paid on average $8,800 per day. 

Such high payments raise questions as to whether payments are 

for Medicaid services and are economical and efficient. 

It is important to note that GAO has a longstanding body of 

work that has found problems in many states. A necessary step toward improving oversight and accountability in the Medicaid Program is to make payments and financing much more transparent. 

Such transparency is needed for CMS, Congress and other stakeholders to better ensure that Medicaid spending is efficiently and 

effectively fulfilling Medicaid purposes of providing medical assistance to our Nation’s low income citizens. 

Mr. Chairman, this concludes my testimony and I am happy to 

answer any questions. 

[Prepared statement of Ms. Iritani follows:] 

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Mr. LANKFORD. Thank you. 

Mr. Hagg? 

STATEMENT OF JOHN HAGG 

Mr. HAGG. Good morning, Mr. Chairman and other distinguished 

members of the committee. 

Thank you for the opportunity to testify about the Office of Inspector General’s efforts to identify improper state claims of federal 

Medicaid dollars. 

Per your request, my testimony summarizes OIG reports in select areas of the New York Medicaid Program. The two key 

takeaways from my testimony are: one, New York must do a better 

job of monitoring providers to ensure that only allowable services 

are paid and two, CMS must be vigilant in overseeing the states 

to ensure that states do not claim federal reimbursement for improper payments. 

The New York Medicaid Program is one of the largest in the 

Country. In fiscal year 2013, New York received more than $26 billion in federal reimbursements. It had over 5 million beneficiaries 

enrolled. 

With such significant dollars and a sizable beneficiary population 

at risk, it is critical that New York vigorously oversee providers 

and other components of its Medicaid Program. OIG has found millions in improper payments including payments for services not 

provided and duplicate payments. 

Based on our reviews, New York should: one, refund the federal 

share of overpayments to the Federal Government. Overpayments 

in the reports referenced in my testimony amounted to more than 

$200 million. 

Two, New York should issue better guidance to the provider community regarding federal and state requirements for claiming Medicaid reimbursement. 

Three, New York must improve monitoring to help ensure that 

providers are in compliance with applicable federal and state rules. 

States alone do not have sole responsibility in overseeing the 

Medicaid Program. Our work has uncovered significant problems 

when states game the system and CMS does not act quickly to stop 

it. 

My prior testimony before this committee discussed payments to 

state-run developmental centers, payments that far exceeded the 

cost of providing services. If New York had used actual costs in its 

rate setting methodology, it would have paid $1.4 billion less for 

services in 2009. This would have saved the Federal Government 

as much as $700 million in that year alone. 

These rates escalated drastically over time because the state’s 

rate-setting methodology originally approved by CMS in 1986 significantly inflated the Medicaid daily rate for developmental centers and CMS did not prevent the rate from increasing to its current levels. 

We have identified similarly inflated payments to New York 

State-run residential facilities. These facilities provide habilitation 

services which assist individuals in obtaining skills to live in the 

community. If New York had used actual costs in its rate setting 

30 

methodology, it would have saved the Federal Government as 

much as $346 million in 2011 alone. 

In April 2013, CMS and New York agreed on a new methodology 

for determining rates paid to state-operated developmental centers 

that will better align rates and costs. CMS needs to do the same 

with the state-operated facilities that provide habilitation services 

to ensure that this methodology meets the federal requirements 

that payments be consistent with efficiency and economy. 

These needs are not specific to New York. While my testimony 

today focuses on select issues in the New York Medicaid Program, 

OIG’s audits in other states reveal similar problems with both state 

and CMS oversight. 

Given the projected growth in Medicaid, it is critical that we promote integrity, accountability and policies to better protect Medicaid resources. 

Thank you for your interest in this important issue. I appreciate 

the opportunity to appear before you today. I would be happy to answer your questions. 

[Prepared statement of Mr. Hagg follows:] 

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Mr. LANKFORD. Thank you. 

Ms. Mann? 

STATEMENT OF CINDY MANN 

Ms. MANN. Good morning, Chairman Lankford, Ranking Member 

Speier and members of the subcommittee. 

Thank you for the opportunity to testify about Medicaid financial 

management. We understand and appreciate your interest in this 

very important topic. 

Medicaid serves 65 million people with a vast array and diverse 

array of health care needs. To serve these individuals, states rely 

on a similarly diverse array of health care providers reflecting their 

local markets, the needs of the population and the state’s preferred 

approach to delivering and paying for care. 

Our program rules attempt to accommodate this diversity while 

also assuring access to care for eligible individuals and sound management of program resources. 

CMS takes very seriously our responsibility to ensure proper financial management and we are continuing to refine and improve 

our work driven by a strong and abiding resolve to ensure that all 

of the dollars that are directed to this program are spent wisely 

and for the purpose to which they are intended. 

Accountability for assuring appropriate financial management 

lies both with CMS and the states. Our ability at CMS to assure 

proper financial management depends on a large degree on our 

ability to explain clearly to states what their responsibilities are 

with respect to financial management and to use our resources to 

help them to do as good a job as they can in that area. 

It is also important for our responsibilities to be executed properly to focus on areas where state and federal interests may diverge. 

My colleagues with me today are key partners in that effort. 

Both the HHS OIG and the GAO provide valuable state and issue 

specific analyses on which we routinely rely on. I would like to acknowledge their work and their contributions. 

I want to use my time this morning to outline just a few of the 

steps we have recently taken to improve financial management. 

The committee has looked closely over the period of the last couple 

of years on the issue of federal upper payment limits. 

Consistent with the commitments that we made to this committee in March 2013, we required states to submit annual demonstrations that their federal upper limits were in fact operating 

consistent with this law. 

Until the guidance was issued, states reviewed upper payment 

limits only when a state made a change. As we saw in the instance 

of New York, without regular review, an upper payment methodology that was approved decades ago may stay in place and ultimately through the passage of time and events become out of compliance with statutory requirements. 

We are now reviewing upper payment limits annually. We have 

received the first submissions and are reviewing them now. 

In May 2014, we issued guidance regarding allowable uses of 

provider related donations in the context of some public and priVerDate Aug 31 2005 10:06 Oct 14, 2014 Jkt 000000 PO 00000 Frm 00042 Fmt 6633 Sfmt 6633 C:\DOCS\90771.TXT APRIL
39 

vate financing arrangements which also usually involve supplemental payments. 

We saw some issues arise in a few states and we thought we 

needed to be proactive to let states know what we would and would 

not approve in this area. 

Capitated payments to managed care plans account for about 30 

percent of all our Medicaid spending. Over the past year, we have 

significantly deepened our review of managed care rates working 

hand in hand with our Office of the Actuary and mindful of GAO 

recommendations in this area. 

We have also revamped our payment error rate measurement 

program, known as PERM, to ensure that states properly implement the eligibility changes ushered in by the Affordable Care Act. 

PERM error rates in Medicaid have been declining but again, we 

wanted to be proactive in this area because the eligibility changes 

affect all states and are significant so we implemented a 50 state 

strategy so that every state has a PERM eligibility review in 2014, 

2015 and 2016. Without this change, only one-third of the states 

would have been reviewed in each of those years. 

We have also invested significant resources in improving the 

data available to CMS, the states and the public to support program and financial management. These activities are in addition to 

our regular review of program expenditures. 

In my remaining time, let me briefly cover a few points raised 

by the testimony from Mr. Hagg and the GAO as well. 

Ms. Iritani’s testimony raises two concerns. One relates to the 

non-federal share of financing for the Medicaid Program noting 

that it is within limits and federal law permissions for states to 

rely on both state general revenues and local revenues. 

It is common for states to rely on a mix of state and local revenues when they finance public services. Medicaid is no different 

and allows for that mix. The GAO’s report looks at the increase in 

reliance on intergovernmental transfers and local government financing during the time of the recession, between 2008 and 2011, 

where state general revenues were declining. We did see states rely 

more on local revenues. 

States have different reliance on local revenues and the Medicaid 

Program allows that. There is no finding in the GAO report that 

anything was in violation of federal law on that. 

The second finding in the report is based on a preliminary analysis looking at some upper payment limit supplemental payments 

to New York hospitals. We have not yet seen the report on which 

this part of the testimony is based so will be eager to do so. 

It certainly raises concerns, not that the upper payment limit 

was violated—it appears upper payment limit was intact—but 

questions about payments to a particular hospital. These are safety 

net hospitals. These were hospitals that are a part of the New York 

City Health and Hospital Corporation with particularly high needs. 

We will look into this payment and certainly commit to ongoing 

efforts to increase transparency on the payment side of supplemental payments. We believe that is an important step forward 

and one in which we are already undergoing some work. 

Mr. Hagg’s testimony focuses on New York. As he noted, New 

York is a very large and complex program. Our work with New 

40 

York, as with other states, is ongoing. The audits Mr. Hagg described are all under active review by CMS. 

As the committee knows and as the Chairman referenced in his 

opening statement, CMS has taken significant action, as has New 

York, with respect to the payments to both institutional and community-based public providers of services to people with disabilities. 

We have adjusted the rates going forward, completed our financial management review with the Office of Inspector General, 

issued a disallowance for the period covered by the review and the 

work continues as the Chairman noted. 

I will close by reiterating our very strong commitment to program integrity and financial management, including our commitment to continue to improve and enhance our oversight of this very 

important program. 

[Prepared statement of Ms. Mann follows:] 

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Mr. LANKFORD. Thank you. I will recognize myself for five minutes of questioning. 

Ms. Mann, have you all done an estimate of the cost of the paperwork just to fulfill the requirements from Medicaid for hospital 

providers and such? 

What was the typical estimate of the cost for them to be able to 

fulfill the paperwork requirements? 

Ms. MANN. Mr. Chairman, I am not sure there are many paperwork requirements for hospitals to support their claims to states, 

to support their claims to the managed care plans. We do not require direct paperwork submissions from the hospitals. We do not 

pay the claims directly. The states would do that. 

Mr. LANKFORD. I understand that. Part of the challenge we have 

here is the transparency side of how things are paid. It has already 

come up. We pull the documentation so we know how to be able 

to track that. 

Is there some sort of ballpark guess, if you are going to be in the 

Medicaid Program, obviously the states are running the program 

day to day, what the cost is for the hospital or the provider to be 

able to do separate from the cost to actually provide for the patients themselves? 

Ms. MANN. The hospitals would be the best judge of that. Obviously their decision to participate in the Medicaid Program is 

theirs, so they determine that it is cost effective for them to do so. 

Overall, the Medicaid Program spends less than five percent or 

about five percent on administrative costs. 

Mr. LANKFORD. Medicaid spends five percent in Washington, 

D.C. or in the hospitals themselves, it is a five percent cost? 

Ms. MANN. Overall, nationwide, in terms of public dollars, state 

and federal dollars, I would have to look into what a hospital might 

spend itself on complying with federal Medicaid requirements and 

how that compares to complying with private insurer requirements. 

For example, there are certainly paperwork requirements. states 

need to substantiate the claims and make sure they are well documented. 

Mr. LANKFORD. Right now, you are saying the administrative 

cost for states and local governments and the Federal Government 

is five percent for Medicaid? 

Ms. MANN. Overall, of our expenditures, that is correct. 

Mr. LANKFORD. But you don’t know what it is for the hospitals 

at this point? 

Ms. MANN. No, and I am sure it would vary significantly. 

Mr. LANKFORD. I am confident that it would. I understand that— 

day to day, different operations of different hospitals. 

You mentioned in your testimony, Ms. Mann, that ‘‘We saw 

issues arise in a few states on the state-provided share for that.’’ 

What do you mean by that? 

Ms. MANN. There was a state plan amendment that we received 

from one state, the state of Louisiana that raised questions for us 

about these public/private arrangements. We denied that state plan 

amendment. 

Mr. LANKFORD. Why? 

Ms. MANN. Because we determined that the state plan amendment was about permission to do supplemental payments. In all of 

52 

our inquiries about supplemental payments, we ask for the nonfederal financing for the supplemental payment. 

We determined that it was based on provider donations that we 

felt violated our provider donation rules and that, as such, we could 

not approve the supplemental payment. We are now moving forward with action around the provider donation itself. 

We were concerned that this kind of practice might spread and 

we wanted to make sure that it didn’t and so decided to issue a 

national guidance on it. 

Mr. LANKFORD. For a local government to be able to kick in some 

of the funding, the non-federal share and a state government to do 

that in a non-federal share, I understand that. Tell me about the 

provider tax. Where does that fit into this? 

Ms. MANN. This was a provider donation so we have rules that 

govern when a health care provider can also finance a non-federal 

share of the program. They might do so through a donation, 

through a provider tax—Congress has established pretty elaborate 

rules and we implemented those rules through regulations—to prevent essentially a recycling so that a provider can make a donation, 

receive payment back from the Federal Government through the 

state and in fact not have Medicaid service to show for it. 

We felt that the provider donation in this circumstance violated 

the federal rules and we disapproved the supplemental payment 

and acted to provide national guidance. 

Mr. LANKFORD. Ms. Iritani, you mentioned a couple times in your 

testimony the provider payments, these provider tax issues and the 

non-federal share. Where do you think the providers are coming up 

with those dollars? Hospitals don’t have a lot of money either at 

this point. 

When hospitals are providing a provider tax to be able to provide 

this non-federal share, where is that money coming from? 

Ms. IRITANI. We haven’t looked at where providers are getting 

the money but in the three examples we have in our report, we 

looked at financing arrangements in three states, including two 

that involved provider taxes. 

We looked at the effect of the arrangement and estimated if the 

arrangement had not been put in place, what the federal share 

would have been. In each case, we found the federal share increased, the payment to the providers increased, and the state’s 

share remained the same or decreased. 

Mr. LANKFORD. I would like to recognize the Ranking Member of 

the full committee, Mr. Cummings, for his questions. 

Mr. CUMMINGS. Thank you, Mr. Chairman. 

Ms. Mann, when Congress passed the Affordable Care Act, we included a very important provision that allows states to expand 

their Medicaid programs. States can now provide Medicaid services 

to their constituents with families below 138 percent of the poverty 

line. 

As a result, millions of families, children, pregnant women and 

many others are now able to get critical medical services like doctor’s visits, prescription drugs and preventive care. 

As a part of this program, Congress pays 100 percent of the cost 

for three years. After that, the amount declines to 90 percent and 

the states pay 10 percent. Is that correct? 

53 

Ms. MANN. That is correct. 

Mr. CUMMINGS. This is a great deal for states because it allows 

them to cover millions of additional people who are their constituents, people who otherwise might be going to emergency rooms for 

uncompensated care. 

It provides a huge boost to state’s budgets, creates jobs and 

health care providers across the Country support it but not all 

states are doing it. states with democratic governors all support expanding Medicaid but Republican governors disagree among themselves with wildly differing explanations. 

For example, Jan Brewer, the Governor of Arizona, stated that 

expanding Medicaid ‘‘would extend cost effective care to Arizona’s 

working poor using the very tax dollars our citizens already pay to 

the Federal Government.’’ 

She added, ‘‘It will help prevent our rural safety net hospitals 

from closing their doors and boost our economy by creating more 

than 20,000 jobs at a time when Arizona needs them most.’’ 

Similarly, Ohio Governor John Kasich stated, and Ms. Speier 

talked about this a little earlier, ‘‘It is going to save lives,’’ which 

I guess means if they don’t have it, there will be people who will 

probably die. He went on to say, ‘‘It is going to help people and you 

tell me what is more important than that.’’ 

Ms. Mann, are you familiar with the fact that these two governors supported expanding Medicaid in their states? 

Ms. MANN. Yes, I am. 

Mr. CUMMINGS. On the other hand, some Republican governors 

opposed Medicaid expansion and they claim the exact opposite that 

it will cost the state too much money and they will lose jobs. 

For example, Texas Governor Rick Perry stated, ‘‘It is like putting 1,000 more people on the Titanic when you knew what was 

going to happen.’’ Florida Governor Rick Scott stated, ‘‘It will be a 

big job killer because it will cost too much.’’ 

Ms. Mann, all Democratic governors agree that this program is 

a great deal for their states and constituents but Republican governors disagree with each other with some fully supporting and 

others claiming it will be the end of the world. Do you know why 

that is and do you have an opinion on that? 

Ms. MANN. I will say I think there is more bipartisan agreement 

than maybe those numbers might indicate. Many of the Democratic 

governors that supported and enacted expansion have legislators 

controlled by the Republicans and we are seeing additional states 

consider Medicaid expansion for the reasons you have outlined, Mr. 

Cummings, because it helps the residents of their states, reduces 

uncompensated care, brings in important federal dollars to the 

state and obviates the need for state and local governments to be 

able to pay for services that now can be covered because people 

have insurance. 

It makes good fiscal sense, makes good moral sense and increasingly, we see states and state legislatures rethinking their decision 

about the Medicaid expansion. 

Mr. CUMMINGS. To me this should not be based on politics, 

should not be based on whether a particular governor is a Republican opposed to the Affordable Care Act for political reasons. 

54 

This should be based on the facts and the data. Today, I sent letters to six Republican governors, three who support Medicaid expansion for their constituents and three who oppose it. I ask unanimous consent that those six letters be made a part of the record, 

Mr. Chairman. 

Mr. LANKFORD. Without objection. 

Mr. CUMMINGS. Ms. Mann, I didn’t ask them for rhetoric or political position. I asked them for the actual data analysis that they 

relied on in making their decisions. How much did they estimate 

the expansion would save or cost, how many of their people would 

be helped or hurt, and how would their state budget be affected, 

positively or negatively. 

My last question to you is whether GAO would be willing to assist us in reviewing their responses. I really want to see what they 

say. Would you help us analyze this data and these reports so that 

we can evaluate them thoroughly and better understand their decisions? 

Ms. MANN. The question is for GAO? 

Mr. CUMMINGS. Yes, GAO. Would you help us do that? 

Ms. IRITANI. We are happy to work with your staff on that. 

Mr. CUMMINGS. Thank you very much. 

I see my time has expired. Thank you, Mr. Chairman. 

Mr. LANKFORD. Mr. Walberg? 

Mr. WALBERG. Thank you, Mr. Chairman. 

Thanks to the witnesses for being here today. 

Ms. Iritani, as I understand, GAO found evidence that states 

were under reporting information on funds received from the providers and local governments. Can you discuss your findings further? 

Ms. IRITANI. Certainly. states are required to report provider 

taxes to CMS on the expenditure reports known as the CMS 64. 

We surveyed states to identify provider taxes and we discovered 

there were six states that had reported provider taxes to us that 

were not reported on the CMS 64. CMS officials also agreed that 

the state reported provider tax information is not reliable or complete. 

Mr. WALBERG. I assume the reason that is important is for efficiency? 

Ms. IRITANI. For oversight. There are requirements around provider taxes in terms of certain federal limits and parameters. 

Mr. WALBERG. Ms. Mann, I assume that you are concerned about 

the fact that states are under reporting the payments. What has 

CMS done to address this problem? 

Ms. MANN. Absolutely, we are concerned. We require the 64 reporting and I underscore the word require. It is a requirement, not 

an option, with states. I think both in the area of provider taxes 

and the area of supplemental payments we have increased our efforts to assure proper reporting on the 64s. 

I think the reporting has increased significantly. I don’t think it 

is 100 percent there and we are working very hard to make sure 

it is 100 percent there as it should be. 

Mr. WALBERG. Any specifics on how you are doing that to get the 

100 percent? 

55 

Ms. MANN. We are reaching out to every one of the states. We 

do approve provider taxes so we have information about provider 

taxes from different mechanisms so we are cross walking our information in particular our regional offices. We have ten regional offices around the Country and we are specifically reaching out to 

every state to underscore the importance of proper reporting on the 

64. 

We have also revised our 64 this year to add some additional 

items for reporting. We certainly agree with the GAO that transparency and having proper information is key to good oversight. 

Mr. WALBERG. Ms. Iritani, I understand another GAO study on 

payments to government-owned providers was hampered by poor 

data and state records. Can you describe some of the challenges 

that the GAO encountered? 

Ms. IRITANI. Certainly. We attempted to identify payments to 

government providers that states were making. In doing so, we 

tried to combine data that only states have on supplemental payments they make with the claims data at the federal level on payments to providers. 

The problems we faced were significant. As an example, states 

may pay providers using different provider identifiers than what is 

captured in the federal claims data. states may use multiple state 

identifiers in paying providers supplemental payments. 

We found that one state we contacted didn’t have a crosswalk between the national provider identifier. 

Mr. WALBERG. What state was that? 

Ms. IRITANI. That was California. It didn’t have a crosswalk so 

that we could not match the state-provided data with the federal 

data very easily. 

Mr. WALBERG. As I understand, federal law requires that Medicaid payments are efficient and economical, correct? 

Ms. IRITANI. That is correct. 

Mr. WALBERG. Given that we don’t know how much providers are 

receiving through supplemental payments, is it impossible for CMS 

to verify whether payments satisfy the efficient and economical criteria? 

Ms. IRITANI. Certainly not for those providers receiving the large 

supplemental payments that only states capture data for. We estimate that about $43 billion in supplemental payments were likely 

not captured in the federal data. That is quite a bit of money. 

Mr. WALBERG. I see my time is about to expire, so I yield back. 

Mr. LANKFORD. Ms. Speier? 

Ms. SPEIER. Thank you, Mr. Chairman. 

Thank you, again, to our witnesses. 

Let me ask you, Ms. Mann, on the issue of provider donations, 

it is kind of an odd concept to me. I think probably what we are 

talking about is uncompensated care that is being provided by 

these hospitals because we, in the Federal Government, have required that anyone who shows up at an emergency room, regardless of their ability to pay, must receive care. Is that a fair assumption? 

Ms. MANN. You are right, that may be considered a provider donation in the broader sense, but under our federal law, that is not 

the kind of donation we would be looking for. I think they are genVerDate Aug 31 2005 10:06 Oct 14, 2014 Jkt 000000 PO 00000 Frm 00059 Fmt 6633 Sfmt 6633 C:\DOCS\90771.TXT APRIL
56 

erally rare. In the case I referenced, it was around a lease agreement for a private hospital to agree to provide some services to the 

state that ended up being treated as a donation. 

Ms. SPEIER. It is unusual to have provider donations is what it 

sounds like? 

Ms. MANN. It is not that common for the reasons you would 

imagine. 

Ms. SPEIER. Mr. Hagg made the point that it is really important 

for CMS to take the example of New York because he doesn’t presume it to be isolated and look across the Country to see to what 

extent that has happened in other states. Have you done that? 

Ms. MANN. Absolutely, and we take our information from our experience overseeing financial management in all the states to think 

about how to move forward in New York. For example, we issued 

guidance to all 50 states around annual demonstration of the upper 

payment limit, exactly the issue we identified as the problem in 

New York. 

Ms. SPEIER. I want to ask a more specific question. Have you 

looked at other states to see if there have been overpayments so 

that you might be able to claw that back? 

Ms. MANN. Yes. We have required annual submissions and we 

look at their data to be able to see if there are overpayments. 

Ms. SPEIER. Have there been any overpayments? 

Ms. MANN. We are still looking at the first submissions provided 

by states. They were just submitted in 2014. We are looking at that 

now. 

Also, right after New York, we determined some of the issues 

with the New York upper payment limit, that it was an old state 

plan amendment that had an automatic escalator. We looked at 

every state to see what upper payment limit methodologies we had 

accrued over the decade with automatic escalators. 

We determined none had the kind of problem we identified in 

New York. We are taking a number of different steps to be able to 

see immediately and then over time, whether these problems arise 

in other contexts. 

Ms. SPEIER. Are you going to claw back the money in New York? 

Have you taken steps to do that? 

Ms. MANN. We have issued a disallowance in New York. We 

issued the disallowance on last Friday of $1.257 billion for the year 

covered by the financial management review. We have worked with 

New York and effective April 2013, their rates to the residential 

developmental disability centers were lowered by about 75 percent. 

We are going to do a further adjustment of that amount based 

on the financial reviews Going forward, since April 2013, those 

rates have been righted. 

We have also addressed the payments rates for their home and 

community-based service waiver public providers. We have reached 

agreement with New York. That is also retroactive to April 2013 

and the work continues. 

Ms. SPEIER. Good. Mr. Hagg also referenced the rehabilitation 

services in New York and that you should look at them as well. 

Have you done that? 

Ms. MANN. We are looking at all the audits that OIG has done 

in New York. They are all under active review. Some have cleared 

57 

our review which means we have come to an agreement with the 

OIG and its findings and will do further work with New York to 

do recovery. 

Ms. SPEIER. Thank you. I am going to move on to Ms. Iritani. 

The call in your report really is about transparency. 

Ms. IRITANI. That is correct. 

Ms. SPEIER. If you were to suggest to CMS what steps they 

should undertake to ensure transparency moving forward in terms 

of the data they are getting from states, what would that entail? 

Ms. IRITANI. We have made a recommendation in our new report 

that CMS develop a data collection strategy for improving data on 

the financing side. We have prior recommendations in reports that 

CMS require provider specific payment reporting so that supplemental payments that states make that are not captured in federal 

data are visible to the Federal Government for oversight purposes. 

Ms. SPEIER. Ms. Mann, are you going to undertake that kind of 

transparency? 

Ms. MANN. Yes. We definitely think that transparency on the 

payment side is critically important and we do investigate the nonfederal share of funding with respect to any action a state is taking 

individually. 

We are looking at different ways to ensure that the rule in law 

that no more than 40 percent of the non-federal share can be 

through non-state sources is abided by. There is no indication from 

the GAO report they were even close to violating that but we do 

want to be proactive and think about a statewide reporting structure that may capture that information. 

Ms. SPEIER. My time has expired. Thank you. 

Mr. LANKFORD. Thank you. 

Mr. Woodall? 

Mr. WOODALL. Thank you, Mr. Chairman. 

Thank you all for being here today. I wanted to follow up a bit 

on what Mr. Cummings asked. 

Ms. Mann, Mr. Cummings and you discussed the state Medicaid 

expansion. What are we looking at in terms of dollars for 2014? I 

have seen dollars for 2012, 2011, 2008. What are the expected federal Medicaid outlays for this calendar year? 

Ms. MANN. About $308 billion. 

Mr. WOODALL. Thinking back to 2012 before the Medicaid expan- sion, it was $251 billion and is $308 billion this time. That is about 

a 20 percent increase. Do you attribute the increase in Medicaid 

spending predominantly to the expansion through the Affordable 

Care Act or do you attribute it predominantly elsewhere? 

Ms. MANN. I don’t have the earlier number you referred to so I 

can’t comment on the 20 percent increase. I don’t think it was that 

high. 

Mr. WOODALL. How many new people are we trying to add? Can 

you compare the Medicaid population from last year to the hopeful 

Medicaid population this year? 

Ms. MANN. Sure. We have been doing monthly data reporting on 

the changes in enrollment in the Medicaid program, not limited to 

the new eligibles but overall Medicaid enrollment. 

Compared to pre-October 1, 2013, the enrollment has increased 

across all states by 6.7 million people. 

58 

Mr. WOODALL. That is an increase of what percent? 

Ms. MANN. We cover about 65 million people. 

Mr. WOODALL. About a 10 percent increase in the number of 

folks who are there? 

Ms. MANN. That is right, more as you might expect in the expansion states, a greater percentage increase in the expansion states 

and less so although still some increase in the states that chose not 

to expand. 

Mr. WOODALL. I will be interested to see when GAO works with 

the Ranking Member on the letters he sent out to governors. I 

don’t know if my governor was one of those. I took a little offense 

to the suggestion that governors oppose it for political reasons. 

I think my governor opposes it for financial reasons. I wanted to 

ask you all about that. Ms. Iritani, I am looking at your report. It 

tells me that Medicaid is on, and has been for 11 years, on the list 

of high risk programs. What has to happen to end up on a list of 

high risk programs? That does not sound like an accolade, it 

sounds like a warning sign. 

Ms. IRITANI. GAO’s high risk list is put together based on work 

that we do and concerns that GAO has about risks related to fraud, 

waste, abuse, mismanagement or programs in need of broad transformation. 

In Medicaid’s case, we put Medicaid on our high risk list because 

of concerns about oversight as well as the significant growth in the 

program, as well as the diversity and challenges of oversight. 

Mr. WOODALL. That is certainly where I would characterize our 

governor as being, that if you have a program in need of dramatic 

transformation, this might not be the right time to try to ramp up 

enrollment. 

I am looking at your report, Mr. Hagg. I think I have misread 

it. It said that the IG’s efforts to identify improper state claims exceed $450 billion, a half trillion dollars is what the IG’s office has 

identified in improper state claims. 

Mr. HAGG. No, that is the total Medicaid spending for I think 

2013, the $450 billion. 

Mr. WOODALL. Help me to understand. It says, ‘‘Thank you for 

the opportunity to testify on ongoing efforts to identify improper 

state claim to federal Medicaid dollars, federal and state outlays 

exceed’’—I see exactly what you are saying. 

As the IG is trying to develop its strategy, are you trying to identify dollar values, or are you trying to identify the number of people 

affected? How do you direct your limited efforts in such a large program? 

Mr. HAGG. It is both. Certainly we try to focus where the dollars 

go, so we do spend a lot of time auditing states like New York and 

some of the other states, Texas and California. We focus on quality 

of care type issues and try to make sure that the Medicaid beneficiaries are receiving proper services. 

We try to look for areas we believe to be high risk, the areas that 

sort of stand out compared to others and try to direct our limited 

resources to those high risk areas. 

Mr. WOODALL. I see my time has expired. 

Mr. LANKFORD. Mr. Davis? 

Mr. DAVIS. Thank you very much, Mr. Chairman. 

59 

Although I am not a member of this subcommittee, I thank you 

for the opportunity to participate. 

Mr. LANKFORD. Mr. Davis, would you yield for a moment? 

Mr. DAVIS. Yes. 

Mr. LANKFORD. I would ask unanimous consent to include Mr. 

Davis and Mrs. Maloney both on this panel for this discussion 

today. Without objection, so ordered. 

Now you are on our panel. How about that? 

Mr. DAVIS. I am delighted. 

I have been around health care, I guess, for about 40 years. I 

have always held that when we passed Medicare and Medicaid, 

those were two of the most effective and best decisions that this 

Country has ever made relative to trying to make sure that low income people had access to a level of health care. 

Ms. Mann, let me ask, have you observed any changes in life expectancy and quality of life since we passed those measures? 

Ms. MANN. I appreciate your comments. Yes, we have seen extraordinary changes in the day to day lives of people. We have 

healthy Americans who no longer have the insecurity of knowing 

that if something happens to their family member, they could go 

bankrupt, they could lose their home, or they could lose their resources. 

We have enrollment campaigns all the time and have had it for 

years since the Medicaid and CHIP programs were passed. We 

have the testimony from parents about what it means for them to 

know their child has the security of coverage. 

We also know people have significant illnesses. They get cancer 

treatments that they wouldn’t be able to get with the absence of 

coverage. They get the benefits of having home and communitybased services that allow them to live, notwithstanding significant 

disabilities or chronic illnesses, in their homes and still be active 

members of the community. 

It goes well beyond the actual health outcomes but really to their 

ability to live their lives and contribute to their communities. 

Mr. DAVIS. Let me say I greatly appreciate the work of each of 

the agencies represented, but I have always found CMS to be a 

pretty tough outfit in terms of what it is that it does and the impact it has on health care delivery with hospitals and other providers. 

I happen to represent more hospitals than any other congressional district in America and also a large number of medical 

schools and large poor populations, individuals who are at or below 

the poverty line. 

I know Illinois has been mentioned in these discussions a little 

bit but looking at New York, is there anything unique that you find 

about the New York population, especially in say New York City, 

that is being treated and makes use of Medicaid? 

Ms. MANN. We certainly see many positive steps in New York. 

New York was one of the early states to adopt managed care to 

begin to move towards a more integrated delivery system to provide services to individuals. It was one of the leaders in that and 

then proceeded to expand its managed care in a slow and careful 

way. I think by and large it has done a good job. 

60 

It has embarked on a recent initiative to improve delivery of 

services and to integrate those services better. It is a very hospitalbased system, particularly in New York City. I think the effort now 

is to assure there are more community-based partners to promote 

better primary care, to reduce hospital admissions and through 

those improvements, to lower costs. 

New York is a microcosm of the Nation but as we often say, is 

a little bit more so—many poor people, many hospitals, many providers and juggling a lot of issues with a very large program. 

Mr. DAVIS. The characteristics are very similar to much of the 

population that I represent, so I can appreciate the efforts they 

have made. I also recognize that you have to pay for what you get 

but I also believe we have to make sure we get as much out of our 

resources as we possibly can. 

Mr. Chairman, I thank you again. I yield back. 

Mr. LANKFORD. Ms. Lujan Grisham? 

Ms. GRISHAM. Thank you, Mr. Chairman. 

I want to try to refocus on the focus of the hearing which is examining whether or not we are curbing our wasteful spending and 

looking at whether there are schemes. 

In listening to some of the dialogue today, I don’t know that I 

would call them schemes, but in fact, CMS scrutinizes I think to 

a high degree a variety of mechanisms that states use when their 

budgets are precarious given the growth in any population. 

Take an elderly, aging and disability population receiving institutional care, for example, and the nursing home bed tax which some 

states successfully did by showing an expansion in those services. 

states like New Mexico had some trouble including in the Medicaid 

rate a reimbursement for a tax for the services provided by the 

nursing homes so that comes back to the state and back into your 

Medicaid budget and identifying whether or not that gives you an 

expanded service. 

Is that one of those provider donation kind of schemes that we 

look at across the Country, Ms. Mann? 

Ms. MANN. Yes, that can be. Our provider tax rules say the tax 

has to be broad based so it is not just targeted to Medicaid providers. The refinancing and circular payments that you describe 

can’t happen. 

Ms. GRISHAM. Had to be for everybody in the facility, as an example, not just those on Medicaid? 

Ms. MANN. That is right and for similar facilities that aren’t 

Medicaid providers. 

Ms. GRISHAM. Every facility licensed to provide that care has a 

tax. 

Ms. MANN. I might note we recently issued on Friday further 

guidance on provider taxes that again looked at a particular practice that we saw might be going on and provided clarification. That 

was with regard to managed care organizations—okay for a State 

to construct a broad based tax on managed care organizations, but 

not just Medicaid managed care organizations because it can lead 

to exactly the issue you raised. 

Ms. GRISHAM. I was trying to get out some testimony about how 

these work and why they work or not and what your scrutiny or 

review looks at specifically. 

61 

Ms. Iritani, the GAO released a report today on methods like this 

perhaps that States use to finance their share of Medicaid, correct? 

Ms. IRITANI. That is correct. 

Ms. GRISHAM. Your report concludes that States have increasingly relied on funds from health care providers and local governments, correct? 

Ms. IRITANI. That is correct. 

Ms. GRISHAM. Did you conclude in any of these reports that these 

funds, along with the federal match, the government’s match, were 

being wasted, used fraudulently or abused in any way? 

Ms. IRITANI. We did not. 

Ms. GRISHAM. I want Medicaid to be leveraged appropriately, 

ethically, legally, managed effectively, want the growth in the population to be considered and effectively addressed but I am concerned that there are data gaps and transparency issues. 

I am committed with this subcommittee and the entire committee and my colleagues to work on those so that we don’t jump 

to conclusions. Unfortunately, that happened in my home state of 

New Mexico. 

The New Mexico Human Services Department prematurely 

stopped Medicaid payments to 15 non-profit behavioral health providers, that equals 100 percent of them, based on allegations of 

waste and fraud that have thus far turned out to be false, untrue. 

This caused severe disruptions in behavioral health care services 

for more than 30,000 adults and children, interrupting access to 

medication, psychiatrists and counselors. As we look at balances 

about what we are doing, I just want to make sure that we are 

clear that the report did not find any of these. 

Ms. Mann, I am looking forward to having you and hosting you 

in Albuquerque in August so that we look at increasing access to 

these very important treatments and making sure these vulnerable 

populations that Medicaid is intended to serve, as my colleague, 

Mr. Davis, so artfully reasserted. 

The point is I think we should not use unverified allegations of 

waste as a pretext to make significant changes to important programs like Medicaid which put at risk the very people these programs were designed to serve. 

With that, I yield back, Mr. Chairman. 

Mr. LANKFORD. Mrs. Maloney? 

Mrs. MALONEY. Thank you, Mr. Chairman. 

I thank the distinguished panelists for being here today, for testifying and for all of your hard work. 

I wish this hearing had chosen to look expansively at the Medicaid Program overall and not just at one specific state, New York, 

but I recognize that our panelists here today work hard to manage 

the Medicaid system and program across the Country. 

The testimony from GAO correctly points out that the size, 

growth and diversity of the Medicaid Program presents a challenge 

to administration and oversight of the program. The challenge in 

New York is significant. 

We invest more in our Medicaid population than any other state, 

offering coverage to more than 5 million New Yorkers. For these 

individuals, Medicaid is a lifeline and Governor Cuomo has taken 

seriously the long term sustainability of the program. 

62 

One of his first initiatives as governor was to launch a Medicaid redesign team which saved $2 billion in its first year alone. 

First of all, I would like to ask Mr. Hagg, you have released a 

series of reports on improper payments in the New York Medicaid 

system. Is that correct? 

Mr. HAGG. That is correct. 

Mrs. MALONEY. Have you done a report similar to this in other 

states? 

Mr. HAGG. We have not. At the committee’s request, we focused, 

in the testimony, on eight different Medicaid audit issues in New 

York that we have issued over the past year. 

Mrs. MALONEY. Why did you just focus on New York? 

Mr. HAGG. It was at the committee’s request. 

Mrs. MALONEY. Are there other states that you think have similar challenges as New York? 

Mr. HAGG. Yes. New York receives a large amount of federal 

Medicaid reimbursement. Based on that and other factors, we do 

spend a lot of time in New York conducting audits on an annual 

basis. 

We also spend time auditing many other states throughout the 

Country, including larger states like California and Texas. 

Mrs. MALONEY. This specific type of report is only for New York, 

so some of the other states that have similar populations—New 

York is an immigration center, New York has a high number of disadvantaged, struggling new immigrants, so we help these people. 

There are other states that have the same types of challenges. 

Why aren’t you doing reports on them? 

Mr. HAGG. We do issue reports on many states throughout the 

Country. On an annual basis, we probably issue 75 or so Medicaid 

audit reports. 

Mrs. MALONEY. Similar to this report? 

Mr. HAGG. If you refer to the letter we sent to the committee 

that focused on the eight individual New York reports we have 

issued over the past year, that letter focuses on New York because 

that is what we were asked to talk about in that letter. 

Mrs. MALONEY. I would like you to come back on other states. 

Let us look and see if this challenge is the same in other states 

with populations like this. Were your findings in this series of audits similar to the findings in other states? 

Mr. HAGG. Yes. 

Mrs. MALONEY. So it was similar to other states. Was the rate 

of error unusually relative to other programs? 

Mr. HAGG. In New York, the reports we focused on fell into two 

categories. One, it had to do with how the state was paying individual providers like home health providers. The second category 

was on the payment methodologies used by the state to pay stateoperated facilities. 

In those two categories, we have done similar work in other 

states, so in New York we have performed home health audits and 

have performed home health audits in others as well. 

Mrs. MALONEY. My question is, are the challenges similar in 

other states as in New York? 

Mr. HAGG. To some degree, yes. When you talk about home 

health providers, when the states are trying to make sure that the 

63 

payments they are making are following all federal and state rules, 

there are challenges in other states as there are in New York. 

Mrs. MALONEY. Where improper payments are identified, we 

need to make changes that help ensure that only qualified providers and beneficiaries access Medicaid resources. I am pleased 

that the supplemental program integrity review issued by CMS 

found that the New York Office of Medicaid Inspector General did 

not substantiate reports of systemic failures that would compromise the long term viability of program integrity activities. 

That office and its counterparts nationwide are critical to identifying improper payments where they exist and recovering these 

funds. 

We often talk about improper payments. I would like to understand from you what is included in this term. Are improper payments necessarily fraudulent, Mr. Hagg? 

Mr. HAGG. No. 

Mrs. MALONEY. What are some of the reasons a payment may be 

classified as improper or noncompliant? 

Mr. HAGG. Specific to the reports we issued in New York, it had 

to do with payments made to providers that did not follow specific, 

applicable federal and state rules. That was one category. 

The second category focused on the payment rates for developmental centers run by the state and residential facilities run by the 

state. In those cases, we saw that the payments rates were extremely high, much higher than the cost of providing services, 

much higher than the payments that were made to the private facilities. 

We consider those inappropriate payments because they are so 

much higher that it is so much harder to justify it as being economical. 

Mrs. MALONEY. My time has expired. I ask permission of the 

Chair to submit in writing additional questions to the panelists. 

Mr. LANKFORD. Without objection, so ordered. 

Mrs. MALONEY. Thank you, Ranking Lady, also for helping us 

with this hearing. 

Thank you so much. 

Mr. LANKFORD. Ms. Duckworth. 

Ms. DUCKWORTH. Thank you, Mr. Chairman. 

The Medicaid Program is a lifeline for the most vulnerable, low 

income and disabled population in Illinois. For the most high risk 

portion of society, this program serves a critical purpose, improving 

health outcomes, improving mental health and decreasing the catastrophic medical expenses. In short, it is a good investment although it would cost taxpayers more money if these folks end up 

at the emergency rooms. 

Since my state of Illinois is one of the examples used in the 

GAO’s report, I wanted to put the discussion into perspective. Illinois receives one of the lowest Medicaid federal matching rates in 

the country, barely above the minimum required by law, in fact, 

only 50.76 percent. 

It serves 4.3 percent of the Nation’s Medicaid population but receives only 3.2 percent of total Medicaid funding. In terms of federal money that reaches our state in general, Illinois ranks 49th in 

64 

federal return of all tax dollars. We only receive 56 cents back to 

Illinois for each dollar our taxpayers send to Washington. 

I would like to thank the witnesses for joining us today on this 

very important topic. Ms. Iritani, are the intergovernmental transfers and provider taxes used by nearly all 50 states to finance their 

Medicaid programs? 

Ms. IRITANI. Could you repeat the question? 

Ms. DUCKWORTH. Yes. Are intergovernmental transfers and provider taxes used by nearly all 50 states in the Medicaid Program? 

Ms. IRITANI. Yes, that is correct. 

Ms. DUCKWORTH. It is not just Illinois that does it? 

Ms. IRITANI. That is correct. 

Ms. DUCKWORTH. Can you explain why GAO is concerned about 

states’ increasing reliance on these sources of funding to finance 

the non-federal share of Medicaid? 

Ms. IRITANI. Yes. We are concerned about the transparency 

around how states are financing the non-federal share. There are 

multiple limits and parameters around, for example, user provided 

taxes and as Cindy pointed out, the percentage of payments that 

need to come from state funds. Currently, there is no data at the 

federal level for monitoring that. 

We are also concerned because there is great flexibility under the 

federal rules for concentrating both on the payment side and on the 

financing side, the use of things like intergovernmental transfers. 

States can require particular facilities to fund all of the non-federal share. It gives states incentives to over pay providers that are 

financing the non-federal share of the payment. That is part of why 

we think there is more transparency needed on both the payment 

side as well as the financing side. 

Ms. DUCKWORTH. In addition to greater transparency, I think we 

all support greater transparency, you are not actually saying to end 

the intergovernmental transfers but you are just saying you would 

like to see more transparency? 

Ms. IRITANI. Exactly. 

Ms. DUCKWORTH. Does the GAO believe it is necessary to adopt 

proposals made by some of my Republican colleagues to block 

grants to the Medicaid Program in order to address these issues? 

Ms. IRITANI. Our recommendations have been aimed at the Administration and Congress around improving reporting, guidance 

and auditing of certain high risk payments. 

Ms. DUCKWORTH. The GAO recommends a narrow, targeted approached focused on improving the reporting and auditing of the 

payments but not actually stopping the system or block grants, correct? 

Ms. IRITANI. Correct. 

Ms. DUCKWORTH. If I correctly understand your answers, these 

are legitimate, allowable funding streams approved by CMS which 

provide critical support to state Medicaid programs. Can you explain a bit more what limits exist to their use of IGTs and provider 

taxes at this point? 

Ms. IRITANI. As Cindy mentioned, provider taxes are subject to 

certain requirements that they be broad based and uniform, and 

not provide a direct or indirect guarantee that the provider will receive the funds. 

65 

There are very few requirements actually on the use of intergovernmental transfers and certified public expenditures. 

Ms. DUCKWORTH. Thank you. 

At a time when federal budgets are tight, it is really appropriate 

to consider all potential savings to the government, but I would 

argue that perhaps the best place to start is not legitimate local 

funding sources for critical health care programs, especially not at 

a time when states are under significant budgetary pressure to provide services to their most vulnerable populations. 

I really worry that limiting these funding sources will inevitably 

mean less care for the neediest patients, longer waits for medical 

care, closed hospitals and layoffs of medical workers. 

In a state with a large rural population, that is a significant 

threat to access to health care for some of the poorest residents of 

my state. In the long run, this will put more pressure on both federal and local government and not less. 

Thank you. 

I yield back, Mr. Chairman. 

Mr. LANKFORD. Thank you. 

As this committee is well aware, this is the second round of questioning, so there will be no clock during this questioning and members may interject at any time to be able to have colloquy during 

any part of the questioning. The same pertains to the witnesses as 

well. If you want to interject, you do not have to wait to be recognized. This is the more free flowing part of our conversation. 

I do want to ask the question because the Medicaid Program has 

been on the high risk list for so long. How do they get off? What 

would be needed for you to see and say okay, they are no longer 

on there because this has been taken care of? 

Ms. IRITANI. We have multiple reports with multiple recommendations that have not been implemented by the Administration as of yet. For a first step, we believe the Administration 

should implement our recommendations in the case of financing 

and payments in terms of more auditing, more reporting and more 

guidance. 

Ms. SPEIER. Mr. Chairman, will you yield? 

Mr. LANKFORD. Absolutely. 

Ms. SPEIER. I actually applaud the high risk list that GAO puts 

out. We should use it as guidance as we review various agencies. 

One of the other big agencies that has been on the high risk list, 

as I understand, for a very long time is the Department of Defense, 

is that not true? 

Ms. IRITANI. I cannot speak to that. 

Ms. SPEIER. I can speak to it. Thank you. 

In truth, we have high risk in many areas within the Federal 

Government. 

Ms. IRITANI. There are many areas, yes. 

Mr. LANKFORD. No question and no dispute on that at all. The 

issue is, it sat out there for a while. We know the issues on DOD, 

they can’t fulfill an audit and that is part of the responsibility that 

this committee and others will have to be able to make sure they 

can audit and be able to implement that. 

I am trying to determine for CMS specifically, what can be done 

for Medicaid to begin to move them off that high risk list, in terms 

66 

of a list of recommendations that need to be implemented. Ms. 

Mann, are you familiar with those recommendations? 

Ms. MANN. I am familiar with the recommendations. We have 

agreed with many of them and have implemented many of them 

and many are being implemented. GAO has been making recommendations about oversight of managed care rates. It is an area 

in which we have deeply engaged ourselves and our Office of Actuaries. 

I think we have made lots of progress on those recommendations. 

In some part, we are a high risk program because we are a large 

program. It is right that there be good attention by the GAO, OIG 

and of course, by CMS and the states on the expenditures in the 

program. 

I want to be clear that we have moved forward with many of the 

recommendations pretty aggressively and continue to do so. 

Mr. LANKFORD. Ms. Iritani, you have a report we just received 

recently from July of this year. In it on one of the pages you talk 

about two hospitals in New York that received $416 million in 

upper payment limit supplementals compared to $70 million in regular payments. Your average on this was $8,800 per day per patient. 

Ms. IRITANI. That is correct. 

Mr. LANKFORD. How did you find that? 

Ms. IRITANI. We worked very hard to obtain from the state the 

data that only the state maintains on the supplemental payments 

that they make and to match that with provider specific analysis 

of the claims data at the federal level to come up with a total 

amount that individual providers were paid. 

We took from the federal data the number of inpatient hospital 

Medicaid days that each hospital provided and came up with an average per day payment. 

Mr. LANKFORD. What is your best guess on how long this kind 

of thing has gone on? 

Ms. IRITANI. In terms of this particular arrangement? 

Mr. LANKFORD. Correct. 

Ms. IRITANI. I believe the original state plan amendment was approved in the early 2000s. 

Mr. LANKFORD. We are talking 12 years or so probably this has 

happened? 

Ms. IRITANI. Because there isn’t payment data at the federal 

level, we did not look at the payments the state was making in 

prior years. We looked at the most recent. 

Mr. LANKFORD. The obvious question for CMS is, how can you 

miss it? When you have someone who has $70 million in regular 

payments, $416 million in supplemental payments, is there a system in place that makes that stand out, set off an alarm, something that triggers this is an outlier? 

Ms. MANN. We are certainly in agreement around the transparency recommendations and have significantly increased transparency around upper payment limits by facility and audits by facility. We would agree that more transparency is needed. 

When you look at base payments compared to DSH supplemental 

payments, states have multiple methodologies by which they decide 

to pay different providers. Some receive DSH payments. These inVerDate Aug 31 2005 10:06 Oct 14, 2014 Jkt 000000 PO 00000 Frm 00070 Fmt 6633 Sfmt 6633 C:\DOCS\90771.TXT APRIL
67 

dividual hospitals did not receive any disproportionate share hospital payments. Other hospitals might have received those payments but not these supplemental payments. 

We need to look at the totality. It was within, we believe—we 

haven’t seen the underlying work that the GAO has done but we 

believe it was within the underlying limits of the cost based upper 

payment limit for this class of facilities. That being said, we want 

to make sure for each of the facilities identified that the payment 

is fair and efficient. 

There are lots of different ways in which hospitals get paid, some 

through supplemental payments, some through DSH payments and 

some through base payments. 

There is also transparency on the public side. Before we approve 

the state plan amendment of the supplemental payments, there is 

a notice that goes out to the community so that other providers as 

well as the public know what is being proposed by New York. That 

transparency I think helps within the marketplace. 

Mr. LANKFORD. I would completely agree with that. Do you know 

what the two hospitals are? 

Ms. MANN. We believe they are two hospitals within the health 

and hospital systems that provide rehabilitative services. 

Mr. LANKFORD. Do you feel at this point from an initial look that 

this is appropriate? Other hospitals are paid in other ways. You 

think this one does a lot to fall within the efficient system? 

Ms. MANN. I am sorry. What I am saying is that generally on the 

issue of base payments and supplemental payments, there are a lot 

of different factors that go into any hospital payments. We have to 

look more specifically at these payments and will be glad to do so. 

Mr. LANKFORD. The question comes back to transparency then, 

how do we find this? What can be built into the system because 

you said lots of people are paid lots of different ways. It is not necessarily going to stand out and no alarm bells go off. We come back 

to it and say these two hospitals together just for this small group 

of patients seem to be such an outlier. 

You may come back to it and you may report back to this committee and say, no, everything is fine. These are very high risks or 

high need patients but the initial blush of it looks like an outlier. 

How did that not pop up? 

Ms. MANN. There are a lot of alarm bells that are built into the 

system right now. We will look into this one and determine whether both payments to these facilities are appropriate but also whether we should take broader steps including the transparency recommendations the General Accounting Office has recommended. 

Ms. SPEIER. Mr. Hagg, you actually highlighted rehabilitation 

services as an area that CMS really needs to look at. I think I 

asked the question, Ms. Mann, if you were looking at rehabilitation 

services and you said yes. 

Mr. Hagg, what can be done to have a trigger occur to CMS in 

a way that it hasn’t historically? 

Mr. HAGG. I think for rehabilitation services, that was through 

a home and community based waiver. In those situations, it requires more thorough review of the waiver, increased monitoring, 

and maybe more often looking at the payment methodologies used 

in those waivers to help develop the payment rates. 

68 

Ms. SPEIER. Let us talk about the waivers. Define what the waiver is and how many states have these waivers? 

Mr. HAGG. I don’t know exactly the number of waivers. Most 

states use waivers in one way or another. It is a way of saying you 

are waiving certain Medicaid rules to help with a different part of 

the program. You are going to provide different types of services 

that normally aren’t provided through Medicaid and CMS waives 

those provisions so that care can be provided. 

Ms. SPEIER. I know California has had waivers. It is a means by 

which they say we don’t have to play by these rules but we will 

provide all these services with this much money. It is a way of 

maybe expanding services or doing things differently to maximize 

benefits and reduce the actual paper. 

Mr. HAGG. Very good services can be provided through waivers. 

The question in our mind here with the work we did, we just say 

that the payment rates, the payment methodology resulted in payment rates for the public for the state operated residential centers 

that were like 57 percent above cost that were twice what would 

be paid to similar private facilities. That is where our concern lies 

not so much with the service that is being provided but with how 

much is being paid for the service. 

Ms. SPEIER. I am having a little difficulty now trying to understand. If it is more than the private by 50 percent, is that what 

you just said? 

Mr. HAGG. Yes. 

Ms. SPEIER. But it is still within the waiver that they were 

granted, so it sounds like they were playing by a set of rules that 

everyone agreed to but then when you look at private providers 

they were actually spending a lot more. 

It seems we create a blank check situation conceivably with the 

waiver that creates that kind of divergence between a private pay 

and a waiver payment? 

Mr. HAGG. The terms and conditions of the waiver were followed 

in this case. We didn’t question cost here. Our report was to CMS 

and we recommended that CMS and the state work together to get 

the payment rate for those state facilities more in line with what 

we believe to be economy and efficiency. 

One distinction here is I believe payments made under waiver 

don’t factor into upper payment limits for those facilities. Upper 

payment limits apply more towards the fee for service payments 

that are made to hospitals, nursing homes and intermediate care 

facilities. 

Ms. MANN. If I might try to clarify, the particular waivers that 

we are talking about here are under 1915(c) to provide home and 

community based services. Many states have them, many states 

have multiple ones to be able to provide those kinds of services as 

alternatives to institutional care for people needing long term services. 

Our waivers actually do require that the public providers either 

pay what they pay in private facilities or private providers or what 

costs are. New York needed to come into compliance with that term 

of the waiver. They have done so. We have worked with them over 

the last year to do that. It is retroactive to April 2013. That agreement has been reached so I think that issue has been resolved. 

69 

One of the areas we are continuing to do more oversight is in our 

home and community based waivers. It is different than these 

other payments. 

Ms. SPEIER. In this case the waiver required them to do something they hadn’t done? 

Ms. MANN. That is correct. 

Ms. SPEIER. Even within the waiver, they were not complying? 

Ms. MANN. They were not in compliance and were brought into 

compliance. 

Ms. SPEIER. Thank you. 

Mr. LANKFORD. Ms. Norton? 

Ms. NORTON. I think it is important to clarify that, in other 

words, the waiver includes and assumes an amount in which you 

will have to be in compliance. It is not an open ended notion. That 

wouldn’t make any sense or else everyone would want a waiver. 

I think this is an important hearing and I thank the Chairman 

for it. I am sorry I was not able to attend earlier. 

As I understand, the states that have foregone Medicaid expansion also have the highest number of uninsured and have always 

had the highest number of uninsured. I have two questions about 

those states. 

That is a lot of money. Do the billions of dollars that are not 

being used by those states go to support the states that are using 

Medicaid expansion? 

Ms. MANN. Certainly it is federal taxpayer dollars being used to 

support the federal share of the Medicaid expansion. Federal taxes 

are raised throughout the Country. To some extent, yes, there is 

cross-subsidization that residents of one state may not be getting 

the benefit of if their state hasn’t chosen to expand. 

Ms. NORTON. How is the health care of these residents who do 

not qualify for Medicaid but cannot in their state qualify for expansion, where do they go for health care? 

Ms. MANN. Often, they don’t get health care. They often don’t 

have a usual place of medical care to get primary care. 

Ms. NORTON. But they get sick like everyone else. 

Ms. MANN. They get sick like everyone else but the point is they 

don’t get the same health care as someone who is insured. When 

they get sick like everyone else, they often will turn to the hospital 

emergency room or if it is a more acute situation, even be admitted 

to the hospital. 

One of the findings for the states that have expanded, we have 

seen reports coming out of Arkansas and Maryland, for example, 

of the reduction in emergency utilization and hospital admissions 

and uncompensated care since those states moved forward with 

their Medicaid expansions. 

Ms. NORTON. That was my next question. Perhaps we are too 

early in the process to get that assessment from all the states but 

one of the most important reasons for passing the Affordable 

Health Care Act was to reduce the use of the emergency room, like 

going to a major hotel to get your health care. When will we have 

some sense of the reduction in uncompensated care? 

Ms. MANN. We have actually been seeing reports from hospital 

systems and states around the Country. We would be happy to provide the reports we have seen so far. Obviously, as you note, it is 

70 

still a bit early and yet even in this early time, we are already seeing in communities across the Country some significant decline in 

uncompensated care. 

Ms. NORTON. Mr. Chairman, I would like to know what decline, 

if any, there has been in the District of Columbia. There may be 

other members who would like to know that kind of information for 

their own states as well. 

Mr. LANKFORD. Absolutely. Is that complete for the District of 

Columbia at this point or at least some preliminary data? 

Ms. MANN. We are not doing the data analysis ourselves. We are 

more relying on analyses that either the local jurisdiction or their 

hospital systems have done or universities. We will look at what 

is available for the District and let the committee know. 

Ms. NORTON. I am very unclear on uncompensated care. I 

thought that once the Affordable Health Care Act passed, there 

wasn’t going to be anymore uncompensated care. You are in a state 

that has not expanded Medicaid and your hospitals, in particular, 

are continuing to get people in the emergency room. Is there a 

process by which you apply to the Federal Government to get uncompensated care the same way you did before the Affordable 

Health Care Act was passed? 

Ms. MANN. There is no federal financing for uncompensated care 

per se. It is absorbed first by the hospital and then by other payers. 

It could be state and local payers that are cross-subsidizing. It 

could be businesses and private payers who are cross-subsidizing so 

that the hospital can continue to provide a certain degree of uncompensated care. 

When more people are covered and there is lower uncompensated 

care, it is a benefit to all payers of our health care system. 

Ms. NORTON. Your testimony is that there is no uncompensated 

care available for hospitals in states who are accepting people in 

their hospitals or emergency rooms, there is no channel for uncompensated care from the Federal Government but the law continues 

that they must provide care for anyone who presents at the hospital? 

Ms. MANN. There is no general uncompensated care fund administered by the Federal Government. The Medicaid Program has 

what is called the Disproportionate Share Hospital Payment Program that provides a capped amount of dollars to states and a key 

purpose of those dollars is to reimburse hospitals for some of their 

uncompensated care. 

Medicaid has a mechanism to help states and hospitals that is 

a capped allotment that varies by states and in the Affordable Care 

Act, anticipating that uncompensated care would be on the decline, 

Congress reduced the overall level of disproportionate share payments, particularly in the out years. 

There is some funding that is available but much of it is absorbed overall by our health care system making our health care 

system as a whole more costly. It is one of the reasons why providing coverage to everybody can help reduce costs for the Nation 

as a whole. 

Ms. NORTON. Could I just ask for the provision of some more information to you, Mr. Chairman? 

Mr. LANKFORD. Sure. 

71 

Ms. NORTON. To the extent that you have any information on the 

effect of the viability of hospitals, particularly in those states which 

have not expanded Medicaid, I would be very interested in knowing 

about those hospitals and whether they are experiencing difficulty, 

whether any have closed and what the viability is and to the extent 

you have that information, that would be informative. 

Mr. LANKFORD. If that information is available, that would be 

very much appreciated. 

Let me add one other piece as well. When is the last time the 

list of the disproportionate share hospitals changed? How often is 

that list updated? 

Ms. MANN. The states decide which disproportionate hospitals, so 

there is a federal definition of what a DSH hospital could be. The 

states then decide which hospitals in their states they will provide 

payments to and how much those payments will be provided. 

We do annual audits, hospital specific audits, of disproportionate 

share. There is always an evolving list and we have those audits 

on our website. 

Mr. LANKFORD. Medicare/Medicaid as well? I know that is the 

other side of the building for you, but do you know if the Medicare 

list has changed or how that is updated? 

Ms. MANN. I would want to get back to you precisely on that. 

Mr. LANKFORD. We will follow up. 

Ms. MANN. Thank you. 

Mr. DAVIS. Mr. Chairman, let me just make one point if I could. 

I am so delighted that we emphasized earlier that every time 

there is an improper payment, it does not mean that there is an 

allegation of fraud nor any kind of scheme. Many of these hospitals, especially disproportionate share hospitals, sometimes will 

make mistakes or there are errors and payments might be received. 

Ms. Mann, I wanted to just ask you are there any provisions relative to recovery and what that actually means? I ask that question because I have come into contact with, and continue to do so, 

many disproportionate share hospitals which I have that are always seemingly on the ropes. They are always wondering if they 

are going to be put out of business, if they going to make it, or are 

they going to be around next year. That level of uncertainty kind 

of keeps them up in the air. 

Are there provisions in terms of looking at these situations a certain way to try and figure out how we can make sure that we salvage them as opposed to causing them to close or go out of business? 

Ms. MANN. You are absolutely right. They tend to be very critical 

providers of services in low income communities. We certainly 

want, through the Medicaid Program generally and the DSH Program, to afford them some stability. 

Obviously the expansion provides the greatest opportunity for 

some of those hospitals to increase their revenues because they are 

serving those people who are now uninsured and for whom Medicaid payment could be issued. 

We try to provide some predictability on DSH payments. Again, 

it is a federal/state responsibility in terms of states deciding what 

those payments would be. The audits provide, I think, some staVerDate Aug 31 2005 10:06 Oct 14, 2014 Jkt 000000 PO 00000 Frm 00075 Fmt 6633 Sfmt 6633 C:\DOCS\90771.TXT APRIL
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bility. I think when there is transparency and clarity on payments, 

then everyone can feel comfortable that my dollars are spent and 

received correctly and I can continue to receive them subject to the 

state’s decisions. 

Let me mention one thing about whether the overpayments— 

your first comment—are not always because of fraud but often because of just mistakes that are made. In addition, the OIG audits, 

for example, will look at, as Mr. Hagg testified, whether federal or 

state requirements are being met beyond federal requirements. 

New York, for example, has many requirements that they impose 

on their providers that are well above what the Federal Government provides. Some of those are excellent requirements for training and certifications. They are not required by federal law but the 

Office of Inspector General’s protocol is to look at violations of 

those protocols as well as others. 

It is a little bit of a double edged sword for states because to the 

extent they are doing more regulating of providers, they run the 

risk of sometimes falling short of not always in every situation 

meeting those requirements. It is an area that we are looking at 

to see whether that is a way in which we ought to be proceeding 

in terms of our calculation of overpayments. 

Mr. DAVIS. Thank you very much. 

Thank you, Mr. Chairman. 

Mr. LANKFORD. Ms. Duckworth? 

Ms. DUCKWORTH. Thank you, Mr. Chairman. 

I would like to hear a bit more about what we are doing to improve oversight of the Medicaid Program, particularly with respect 

to state financing of the non-federal share, going back to that discussion. 

Ms. Mann, can you provide an overview of CMS’ upper payment 

limits demonstration initiative and how it differs from past practice? 

Ms. MANN. Sure, I would be glad to. 

On the issue of non-federal share, as Ms. Iritani testified, it is 

allowable for states to use local resources to meet their non-federal 

share requirement. Many states rely on local revenues. In the state 

of Colorado, for example, more than half of its state and local revenues are locally generated. Vermont is the opposite, much more 

State, not local. 

States raise their money in different ways and the Medicaid Program allows a recognition of that diversity in how States will raise 

their money. We ask about non-federal share to make sure it is a 

proper financing of any action that is before us. 

With respect to the upper payment limit itself, which is a costbased limit as to the amount of total dollars that can be spent to 

certain classes of providers, we have embarked on a new initiative 

requiring every State to submit annually demonstrations that their 

upper payment limit—they used to have to certify, now they have 

to demonstrate with publicly available data by facility what the 

costs are so that we are assuring that not only are they computing 

the upper payment limit correctly but that we compute the upper 

payment for each State for each class of facility. 

That data is publicly available. We are pouring through it now 

and we will determine whether there are any particular payments 

73 

that run afoul of the upper payment limit and whether any further 

action is needed. It is a significant effort being undertaken. 

Ms. DUCKWORTH. If you applied to the past, would the upper 

payment limit program you are initiating now have identified payments such as those run by the New York Office of People with Developmental Disabilities, would it have caught those? 

Ms. MANN. It would have. I might add the State shares responsibility with the Federal Government to assure that it follows federal 

law. The State did certify for years that it was following the upper 

payment limit and its payments were within the limit. The limit 

was not imposed in the last couple of years. 

We did not review that annually. We relied on their certification 

and only reviewed it when they made a change which they didn’t 

make for many years. Now the annual demonstration of the upper 

payment limit to us gives us an additional tool in addition to what 

the State has before them to make sure these kinds of payments 

would not happen again. 

Ms. DUCKWORTH. Ms. Iritani, was that the kind of thing that 

would be helpful in our earlier discussion talking about greater reporting and greater transparency? Would a process like this be 

helpful in providing the oversight? 

Ms. IRITANI. We think the initiative Ms. Mann discussed is a 

good step. However, we feel there are still significant gaps in their 

oversight. In the particular case of the hospitals we identified receiving the very high payments, we looked at the UPL demonstration and the hospitals that had received these high payments. The 

payment amounts they were receiving were not identified. 

We looked at other documentation the State submitted to CMS 

around that payment arrangement and none of the documentation 

actually identified the actual payments those facilities received. 

Ms. DUCKWORTH. I certainly would welcome more oversight. I 

just want to make sure that we continue to provide services to persons with disabilities and other vulnerable groups. Thank you very 

much. 

I yield back, Mr. Chairman. 

Ms. SPEIER. Mr. Chairman, if I may. Ms. Iritani, based on what 

my colleague, Ms. Duckworth, has said, it sounds like we still have 

a way to go to create that kind of transparency that is necessary. 

I don’t want a lot of happy talk here at the end where we think 

we have made all this advancement and in fact, we are just kind 

of nibbling around the edges. What more should be done by CMS 

to make sure that we are addressing the gaps and creating meaningful transparency? 

Ms. IRITANI. On the payment side, CMS needs to know how 

much providers are actually getting paid. Without having supplemental payment data, they cannot know that. The current mechanisms they have for approving payments such as the one with the 

hospitals are not identifying the actual payments individual facilities are being paid. 

On the financing side, CMS’ oversight is also not identifying the 

extent that individual facilities are contributing the non-federal 

share and with the flexibility under federal rules, States can ask 

individual facilities to fund all of the non-federal share of a payment which effectively reduces the facility’s payment significantly. 

74 

From the provider’s perspective, the net payment is what they are 

receiving. 

Mr. LANKFORD. Can you go into greater detail on that last statement? How does that work? 

Ms. IRITANI. The 60–40 requirement in terms of the State being 

required to contribute 40 percent is applied in the aggregate, not 

for individual payment arrangements. It allows States to concentrate a requirement, for example, through an intergovernmental 

transfer on a particular facility to provide all of the non-federal 

share. 

This is part of what creates the incentive for States to over pay 

individual facilities that are financing the non-federal share. 

Mr. LANKFORD. How would do that and why would a facility say 

let us do the bulk of the payment? That is not natural, I would say, 

for a facility to say, we would like to pay the majority of this tax. 

Why would they do that? 

Ms. IRITANI. I think there could be arrangements where they are 

receiving what might be considered excessive payments. From the 

standpoint of the providers, they understand the State needs to 

provide the non-federal share, so they are either being required to 

contribute or are voluntarily doing so. 

Mr. LANKFORD. Can you provide us any examples with that? 

Ms. IRITANI. For example, the two hospitals we identified in our statement that were receiving the $8,800 per day estimated payment from Medicaid, those providers were also financing the nonfederal share of those payments. 

When you consider the match rate for New York, that would reduce the payments they were receiving considering the net payments less the non-federal share they were receiving. We still think 

that even if you cut that $8,800 per day in half it is still much 

higher than what local government hospitals in the city were receiving. 

Mr. LANKFORD. For those facilities, they were paying a much 

higher rate and the provider tax basically the share that needs to 

come in from the non-federal entity but they are also being paid 

a much higher rate when actually they are being paid for their 

services? 

Ms. IRITANI. Exactly. That is how the cost shifting can occur. 

Mr. LANKFORD. Ms. Mann, do you want to comment on that? 

Ms. MANN. Thank you. Again, we would totally agree with the 

recommendation for greater transparency. I just want to make sure 

that everyone is clear that the steps that have been taken are significant. 

Overall, these payments are within what is called the upper payment limit established by Congress by classes. The classes that 

were established divide public providers, State providers and local 

providers to try and address some of these financing issues. 

That upper payment limit assures that in the aggregate the payments to that class of providers can be no more than the cost. 

Mr. LANKFORD. But an individual hospital may get a much, much 

higher rate? 

Ms. MANN. That is right and as we noted before, not saying anything about the validity of this particular payment because we 

need to look at it more closely, these hospitals were not getting disVerDate Aug 31 2005 10:06 Oct 14, 2014 Jkt 000000 PO 00000 Frm 00078 Fmt 6633 Sfmt 6633 C:\DOCS\90771.TXT APRIL
75 

proportionate share payments and they were specialty hospitals 

within the New York City health and hospital system. 

There may be different things going on that we will want to look 

at but within the context in terms of the exposure of potentially excess payments, it is within an overall aggregate cost structure. To 

the extent they are getting those payments, other providers within 

those classes are not. 

Mr. LANKFORD. Right. To the extent of that these two hospitals 

received about ten times more in that supplemental than my state 

did in total for DSH payments. I would say they were an outlier 

to say the least and may need some further examination. 

I have a question and a statement. I don’t know if anyone else 

has additional questions. GAO, there is a sentence in your report 

that I want to follow up and get greater detail on. ‘‘CMS has taken 

steps to improve the transparency and oversight of Medicaid financing and payments but has not implemented all of GAO’s prior 

recommendations and has generally disagreed with GAO’s new recommendation.’’ What is the new recommendation you are referencing there? 

Ms. IRITANI. The new recommendation is that CMS develop a 

data collection strategy for improving the completeness and accuracy of data that they have on how States are financing the nonfederal share. 

Mr. LANKFORD. Is it accurate to say you disagree with that or is 

that something you are in the process of implementing? 

Ms. MANN. First of all, the recommendations on the supplemental payments and public reporting of that is a new recommendation that has not yet been shared with us. It was just announced at this testimony. I believe we fully agree with that. 

The particular recommendation before was on whether we should 

do public reporting of financing of each facility’s payment. We 

think it is probably more helpful to have public reporting of the 

supplemental payments to the facilities and then overall, the 

State’s use of distribution of non-federal share of dollars. 

It was more the particular proposal and using a particular data 

set that we thought was not exactly right, certainly not in the spirit of making sure that there is good information about both the 

non-federal share financing and certainly the actual payments 

themselves. 

Mr. LANKFORD. The difficulty is are we getting accurate, matchable data that we can actually line up what is happening in individual locations with what is being paid so we know what a provider is being paid. 

Ms. MANN. That is right. We totally agree with that. 

Mr. LANKFORD. When is that coming so that we know that? 

Ms. MANN. We will be working on that and we will be in communication with the committee about that. 

Ms. IRITANI. Mr. Chairman, may I respond? 

Mr. LANKFORD. Yes. 

Ms. IRITANI. The recommendation we have to improve facility 

specific reporting of Medicaid payments has been in place for many 

years. That was made to CMS in a report. I don’t have the date 

right now but it has been many years. 

76 

Mr. LANKFORD. Not necessarily public reporting of that but it is 

available to CMS to be able to access that data? 

Ms. IRITANI. Correct. Our work on Medicaid payments to government providers is ongoing. We expect a report by the end of the 

year. We do not have recommendations yet. 

Mr. LANKFORD. Additional comments? Let me drop my one bombshell since it has been referenced several times and on the dais as 

well. It is the comment about block granting which several folks 

have talked about. 

Much of what we have talked about today is transparency of information coming back to the Federal Government. If there comes 

a day that we identify to a State whether it be a pilot program or 

whatever it may be, this State is given the ability to be able to 

manage its people, we are not having to play the provider share 

game and who is doing the provider attacks and what municipality. 

They have the amount of money they are getting right now attached to that State and the responsibility to be able to take care 

of their people in that State. 

Most of the issues we talked about today go away because much 

of the fight is how much information are we getting from States 

and other people. They simply have the responsibility in their State 

which I would assume States are doing anyway, doing whatever 

they can. 

The Medicaid leadership in each State comprises some pretty 

amazing people scattered around the Country trying to do some 

very hard work to be able to manage people in their State of great 

need and who are very, very vulnerable. 

I know this is an ongoing conversation today about transparency. 

I wanted to be able to mention the block granting concept in the 

days ahead because it has come up several times in this conversation. Much of what we talked about being high risk is reporting requirements that all go away and we move from reporting requirements to taking care of people as the first and primary priority 

there. 

Ms. Mann, why do I think you might disagree with that? 

Ms. MANN. A couple of things. I totally agree with we should be 

moving to more outcome based measurement of performance of our 

program. That is something we have been working with and something I think States totally agree with. I fully agree with that. 

I guess where I would disagree is that what we are worrying 

about here, which I think is not the norm. I think you are absolutely right, Medicaid programs are run well. Hard working people 

are running them trying to deliver good services to people who 

need those services. 

To the extent that we worry about State use of those federal dollars and arrangements with providers, block granting those dollars 

and saying we have no responsibility over those dollars seems to 

me to exacerbate the legitimate concerns we think the committee 

has around ensuring always we have sound financial management. 

If there is need for more financial management, the answer is 

not to have less. 

Mr. LANKFORD. I just have the belief that there are people in individual States that actually care for their people, not just the people in Washington, D.C. 

77 

Ms. MANN. I totally agree. 

Mr. LANKFORD. I think there is a way to be able to do financial 

transparency of how it is being spent but understanding the care 

in the decision making, the waivers that have come up multiple 

times today if those move through a State happen much faster and 

the capability to be able to experiment with how you deliver quality 

care to even more people happens at a faster rate when it is made 

on a local level. 

When it is done here in Washington, D.C., they are numbers on 

a page because there is no way to be able to manage it. It is the 

same hearing we have had here multiple times. There is such a 

high rate, as we mentioned, not necessarily fraud but it is money 

we don’t know about, and they haven’t completed all the paperwork, all the signatures aren’t there. 

It is difficult to do for 50 States and 50 processes. It is much different to do in an individual State. 

I know I have taken us off track but I wanted to bring that up 

at the end. 

I thank you for your testimony. I thank you for bringing the additional written documents. We look forward to some follow up 

questions and getting additional data. 

With that, we are adjourned. 

[Whereupon, at 12:00 p.m., the subcommittee was adjourned.] 

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